Lesson 2 1

Project Management2DBA0310

Lesson 2: Defining the project and estimating project times and costs

College of Technology LondonSpring 2009

Lesson 2 2

Lesson outline

Project scope Project priorities Work Breakdown Structure (WBS) Organisation breakdown structure (OBS) Process Breakdown Structure (PBS) Responsibility matrix (RM) Estimating project times, costs, and

resources Developing project budget

Lesson 2 3

Project Scope

Project scope is a definition of the end result of the project

It defines what you expect to deliver to the customer when project is completed

It sets the Boundaries of the Project What, Why, When, How, Who? Goals, Benefits, Time, Costs, Risks, Quality,

People What is not included?

Required for successful project planning Be aware of project creep!

Lesson 2 4

Project scope statement

Project scope statement should include: Project objective

what, when and how much Deliverables

expected outputs over the life of the project Milestones

significant events in a project Technical requirements Limits and exclusions Reviews with customer

Lesson 2 5

Establishing project priorities

Key metrics are: Time, cost & performance objectives

(typically quality/scope) Trade-offs exist among these criteria,

hence it is important to establish their relative importance in the project

Priority Matrix can be used to identify if criterion is constrained, need to be enhanced, or can be accepted

Lesson 2 6

Work Breakdown Structure (WBS)

Breaks the work of the project into smaller and smaller elements

Hierarchical process Helps to clarify all necessary work WBS is a map of the project

It outlines the project with different levels of detail Commonly used grouping:

Complete project Major deliverables

Supporting deliverables Lowest sub-deliverables

(* Cost accounts) Groups of work packages

* Work packages

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Why WBS?

WBS defines all elements of the project in a hierarchical structure and establishes their relationship to the end project

Facilitates the evaluation of project cost, time, and performance at all levels

Provide appropriate information to each level Enables the assignment of responsibilities Enable planning, scheduling and budgeting Creates a framework for tracking cost and work

performance Enable summing of the budget and actual costs into larger

work elements for departmental performance measurement

Defines communication channels Assist in understanding and coordinating project activities Integrates work and responsibility

Lesson 2 8

Outline of Work Breakdown Structure

Project 1.0

1.1 Major deliverable 1.2 Major deliverable 1.3 Major deliverable

1.1.1 Sub-deliverable 1.1.2 Sub-deliverable 1.1.3 Sub-deliverable

1.1.1.1 Lowest sub-deliverable

1.1.1.2 Lowest sub-deliverable

1.1.1.2.1 Work Package

1.1.1.2.2 Work Package

Level

1

2

3

4

5

Lesson 2 9

WBS Example: Room decoration project

Room decorated 1.0

Room prepared1.1

Decoration Prepared 1.2

Decorated 1.3 Room refitted 1.4

Floor protected 1.1.1

Fixtures removed1.1.2

Furniture 1.1.2.1

Curtains 1.1.2.2

Shades 1.1.2.3

Wallpaper Removed 1.2.1

Walls prepared1.2.2

Paint removed1.2.3

Room vacuumed1.2.4

Holes filled1.2.2.1

Walls sanded1.2.2.2

Ceiling painted1.3.1

Woodwork Painted 1.3.2

Walls papered1.3.3

Skirting boards Painted 1.3.2.1

Doors painted1.3.2.2

Windowsill Painted 1.3.2.3

Floors uncovered1.4.1

Fixtures Reinstated 1.4.2

Furniture1.4.2.1

Curtains1.4.2.2

Shades1.4.2.3

Lesson 2 10

Organisation Breakdown Structure (OBS)

Defines the organisational units responsible for performing each work-package budget, time, and technical performance

Ties the organisational unit to cost control account

Developed from WBS Can be illustrated as a diagram or table

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Process Breakdown Structure (PBS)

Alternative to WBS PBS is better suited for process-oriented projects

with less tangible outcome, e.g. IT projects Outcome of a project is a series of steps that

evolve over time with each phase affecting the next phase

Instead of being organised around deliverables (like in WBS), PBS is organised around phases

Each phase can be broken down into more specific activities

Deliverables are defined as outputs required to move to the next phase

Can be used to develop OBS

Lesson 2 12

Responsibility Matrix (RM)

Summarises the tasks of the project and who is responsible for what on a project

Often used in small projects instead of WBS or OBS Can be a presented as a simple chart that lists all the

project activities and the participants (individuals or departments) responsible for each activity

Task Person A Person B Person C

A R

B R S S

C R

D S R

E R

R = Responsible, S = Supports/assists

Lesson 2 13

Estimating project times and costs

Estimating is forecasting or approximating the time and cost of completing project deliverables

Estimates can be delivered by Top-down (macro), or

Delivered from analogy, group consensus, or mathematical relationships

Bottom-up (micro) process Based on WBS

Accurate estimates are preferred but they cost money Hence it is important to compare achieved benefits to the

cost of estimating Cost, time and budget estimates are use as the

baseline values to control the project Past experience is a good starting point for developing

time and cost estimates However they need to be modified because of the

uniqueness of each project

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Why accurate time and cost estimates are important

Estimates are need to Support good decisions Schedule work Determine how long the project should take Determine the cost of the project Determine whether project is worth doing Develop cash flow needs Determine how well the project is progressing Develop time-based budgets Establish the project baseline

Gray and Larson (2007)

Lesson 2 15

Factors influencing the quality of Estimates

Planning horizon Current vs. distant events Major deliverables vs. work packages

Project duration People

Matching people skills to tasks New team vs. old team Staff turnover

Project structure and organisation Padding estimates (to ensure not being late) Organisation culture Other factors

Equipment downtime Public holidays, vacations, legal limits Project priority

Lesson 2 16

Guidelines for estimating time, cost and resources

1. Estimates should be made by people responsible for and most familiar with the task

2. Use several people to estimate (this tend to eliminate extreme estimate errors)

3. Estimates should be based on normal conditions4. Be consistent with time units5. Treat each task as independent of other tasks6. Do not include allowances for contingencies7. Add risk assessment to the estimates to avoid

surprises to stakeholders

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Methods for estimating project times and costs

Macro Approaches Consensus Methods Ratio Methods Apportion Method Function point methods Learning curves

Micro Approaches Template Method Parametric Procedures Detailed Estimates Hybrid phase estimating

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Refining estimates

Reasons for inaccurate estimates Interaction costs are hidden in estimates Normal conditions do not apply Things go wrong on projects Changes in project scope and plans

Ways to deal with inaccurate estimates Adjusting estimates Contingency funds and time buffers Changing baseline schedule and budget

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Types of costs

Direct costs Labour Materials Equipment Other

Project overhead costs General and administrative

overhead costs

Lesson 2 20

Simple cost estimate (example)

Activity Labour cost (£)

Materials cost (£)

Equipment cost (£)

Other cost (£)

Total (£)

A 600 1000 4000 400 6000

B 1900 200 2000 - 4100

C 500 200 - 300 1000

Total (£) 3000 1400 6000 700 11100

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Time-based budget (example)

Work periods

Total(£)

Activity 1 2 3 4 5 6 7 8

A 1000 1000 1000 1000 1000 1000 6000

B 1100 1000 1000 1000 4100

C 500 500 1000

Total (£) 1000 1000 1500 1500 2100 2000 1000 1000 11100

Cumulative Cost (£)

1000 2000 3500 5000 7100 9100 10100 11100

Lesson 2 22

Cumulative cost diagram (example)

0

2000

4000

6000

8000

10000

12000

1 2 3 4 5 6 7 8

Work periods

Cu

mu

lati

ve C

ost

Lesson 2 23

Exercise 1: Project Scope

Read ‘Snapshot from practise: Scope Statement’ in Gray and Larson (2007) p. 104

Consider your own project (Assignment 1) and create a scope statement.

Discuss your scope with the lecturer

Lesson 2 24

Exercise 2: WBS

1. Develop a WBS for a project in which you are going to build a bicycle. Identify all major components and provide three levels of details

2. Consider you own project (Assignment 1). Identify the major components and develop a WBS

Lesson 2 25

Exercise 3: Costing & Budget

Consider your own project (Assignment 1). Develop Simple cost estimate, Time-based budget, and Cumulative baseline cost diagram.

Lesson 2 26

Reference

Gray, C. F. and Larson, E. W. (2007), Project Management: The Managerial Process, 4th Edition, McGraw-Hill Higher Education